This blog posting was contributed by Laura Mackenzie-Mitchell, solicitor with the UK-based law firm Browne Jacobson LLP, which is solely responsible for its content.
Section 54 of the recently-enacted UK Modern Slavery Act 2015 may apply to your organisation, whether incorporated within the UK or not, if it falls within a certain turnover threshold and carries on business in the UK via the supply of goods/services. If caught by the legislation, your organisation is required to publish an annual ‘slavery and human trafficking statement’ stating the steps it has taken during the preceding financial year to ensure that slavery and human trafficking is not taking place in any part of your organisation’s business or any of your organisation’s supply chains. The risks of non-compliance are predominantly reputational, although the UK government does have the power to compel an organisation to issue a statement via an injunction.
In October 2015, the UK Modern Slavery Act 2015 (the ‘Act’) came into force.
The Act is designed to increase supply chain transparency and place greater accountability on businesses for the condition of their supply chains.
It draws on existing anti-slavery legislation in the US, namely The California Transparency in Supply Chains Act 2012, but in fact goes further than this legislation by applying to all sectors (not just retail and manufacturing), applying to goods and services, and applying to businesses that carry on business in the UK irrespective of size of UK presence if certain turnover thresholds are met.
‘Modern Slavery’ is the term used to encapsulate the two offences in the Act: slavery, servitude and forced or compulsory labour; and human trafficking.
Section 54 of the Act contains specific provisions with which certain organisations must comply. It applies to a commercial organisation that supplies goods or services and has a total turnover of £36m a year or more (this is global turnover and not just turnover in the UK).
A ‘commercial organisation’ is defined under the Act as a body corporate or partnership wherever incorporated or formed, which carries on a business or part of a business in any part of the UK, so it covers both UK and non-UK entities. It also clearly catches limited companies, partnerships, limited partnerships and LLPs – and would include franchisers and each parent and subsidiary (whether or not based in the UK) that meets the requirements set out above.
Whether organisations incorporated (or partnerships formed) outside of the UK can be properly regarded as carrying on a business or part of a business in any part of the UK will be answered by applying a common sense approach; UK government guidance suggests that organisations that do not have a demonstrable business presence in the UK will not be caught by the provision.
Likewise, having a UK subsidiary will not, in itself, mean that a parent company that is formed outside the UK is carrying on a business in the UK, since a subsidiary may act completely independently of its parent or other group company.
The Slavery and Human Trafficking Statement
An organisation which fulfils the above Section 54 criteria will have to make a ‘slavery and human trafficking statement’ stating the steps it has taken during the financial year to ensure that slavery and human trafficking is not taking place in any part of its own business and any of its supply chains, or alternatively issue a statement that it has taken no such steps.
Your US company sells products into the UK via its UK subsidiary exclusively (and does not sell into the UK via another source), and manufactures those products via an Indian subsidiary (who supplies direct to the UK subsidiary). Where the UK subsidiary itself has an annual turnover of above £36 million, your US company does not need to publish a statement as its UK operations are solely via the UK subsidiary, which will publish its own statement. The Indian subsidiary will not be required to publish a statement as it is not selling products directly into the UK market, but its operations would need to be addressed in the UK subsidiary’s statement (as it forms part of the UK subsidiary’s supply chain);
Your US company, which has an annual global turnover above £36 million, regularly provides professional services to clients based in the UK. It will be required to publish a statement as it is carrying on business in the UK.
Role in supply chain
Organisations should be particularly mindful of the fact that even where they do not themselves constitute an organisation that falls within the Section 54 threshold, they may be required to assist their customers and suppliers with their own supply chain analysis. Such organisations may also still wish to follow the spirit of the Act, as part of their general good governance practices, depending on the circumstances.
What are the timescales for compliance?
A slavery and human trafficking statement must be made in respect of each financial year.
If your organisation’s financial year ended before 31 March 2016, you do not have to make a statement regarding the recently-expired financial year (but will for this coming year).
If your organisation’s financial year ended/ends on/after 31 March 2016, you need to prepare a statement in respect of the 2015/2016 financial year. Your first statement should be published as soon as reasonably practicable after the end of the 2015/2016 financial year; in practice the UK government encourages organisations to report within six months of your financial year end.
What should the statement include?
There are currently no mandatory requirements as to the content or length of the statement. Based on the Act requirements, the information relating to an organisation that may be contained in a statement includes:
- its structure, business model and supply chains
- the parts of its business and supply chains where there is a risk of slavery and human trafficking taking place, and the steps it has taken to assess and manage that risk
- its due diligence processes in relation to slavery and human trafficking in its business and supply chains – this should be proportionate to the identified modern slavery risk, the severity of that risk and informed by any wider risk assessments that have been conducted
- its policies relating to slavery and human trafficking
- its effectiveness in ensuring that slavery and human trafficking is not taking place in its business or supply chains, measured against appropriate key performance indicators
- the training about slavery and human trafficking available to its staff
Sanctions for non-compliance
There is no initial fine. However, the UK Secretary of State may seek an injunction to compel the organisation to issue a statement – if this injunction is not complied with the organisation will be in contempt of a court order, which is punishable by an unlimited fine.
So, why should you take action?
The requirements of the Act seek to create a ‘race to the top’ by encouraging organisations to be transparent about what they are doing and in the process drive up standards. Non-compliant organisations may expect pressure from wider society, shareholders and competitors to implement the requirements of the Act – and risk negative publicity and an adverse impact on brand and share value for failing to comply, especially if they operate in a sector which is already in the spotlight for labour and supply chain issues. Your suppliers or customers may also scrutinise your actions more closely in light of their own obligations to comply.
The UK government has also indicated that it may name and shame organisations that do not comply in a timely manner.